P L d 2000 s c 225 (Riba prohibition stayed)

 

 

 

A description of Riba al-Fadl

 

 

 

58. So far as the statement of Hazrat Omar (r.a.a.), is concerned, it will be necessary before analyzing it to note that the Holy Qur’an had prohibited the Riba of Jahiliyya with all their forms already mentioned above. All these forms related to the transactions of a loan or a debt created by sale etc. But after the revelations of these verses, the Holy Prophet (p.b.u.h.) prohibited some other transactions as well which were not known previously as Riba. The Holy Prophet (p.b.u.h.) felt that, given the commercial atmosphere at that time, certain barter transactions might lead the people to indulge in Riba. The Arabs used certain commodities like wheat, barley, dates etc., as a medium of exchange to purchase other things. The Holy Prophet (p.b.u.h.) treating these commodities as a medium of exchange like money, issued the following injunction:

 

 

 

Gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, must be equal on both sides and hand to hand. Whoever pays more or demands more (on either side) indulges in Riba.”

 

 

 

59. It means that if wheat is exchanged for wheat, the quantity on both sides must be equal to each other and if the quantity of any one side is more” or less than the other, this transaction is also a Riba transaction, because in N the tribal system of Arab these commodities were used as money, and the exchange of one kilogram of wheat for one and a half (1 ½) kilogram of another wheat would stand for the exchange of one dirham for one and a half (1 ½) dirhams. However, this transaction was termed as Riba by the Holy Prophet, (p.b.u.h.), and it was not meant by the . term `Riba AlJahiliYya’. Therefore, it was known as `Riba al-Fadl’ or `Riba-al-Sunnah’.

 

 

 

60. It is to be noted that, while prohibiting the Riba al-Fadl, the Roly Prophet (p. b. u. h.) has identified only six commodities and it was not. clearly mentioned in the above hadith whether this rule is limited to these six commodities or it is applicable to some other commodities as well, and in the latter case what are those commodities? This question raised controversy among the Muslim jurists. Some earlier jurists, like Qatadah and Tawoos, restricted this rule to these six commodities only, while. the other jurists were of the opinion that the rule will be extended to other commodities of the same nature. Then there was a difference of opinion about the nature of these commodities that might be taken as a common feature found in all the six commodities and a criterion for identifying the commodities which are subject to the same rule. Imam Abu Hanifa and Imam Ahmad are of the opinion that the common feature of these six commodities is that they can either be weighed or measured, therefore, any commodity which is sold by weighing or measuring falls within this category and is subject to the same rule, if it is bartered with a similar commodity. Imam Al-Shafie is of the view that the common feature of these six commodities is that they are either eatables or they are used as a universal legal tender. Wheat, barley, date, salt represent eatables while gold and silver represent universal legal tenders. Therefore, according to Imam AlShafie all eatables and universal legal tenders are subject to the rule mentioned in the Hadith. Imam Maalik is of the opinion that the common feature among these six commodities is that they are either food items or they can be stored, therefore, he holds that everything which falls under the food items or can be stored is included in the same category, hence, subject to the same rule.”

 

 

 

61. This difference of opinion among the Muslim jurists was based on the fact that after specifying the six commodities the Holy Prophet (p.b.u.h.) did not expressly mention whether or not other commodities will assume the same status.

 

 

The correct meaning of Hadrat Umar’s Statement

 

 

 

62. It is in this background that Sayyidna Umar (r.a.a.), has stated that N the Holy Prophet (p.b.u.h.) passed away before giving any specific direction with regard to this difference of opinion. A deeper study of the statement of Hazrat Umar (r.a.a.), reveals that he was doubtful only about the Riba alFadl mentioned in the Hadith cited above, and not about the original Riba which was prohibited by the Holy Qur’an and was practised by the Arabs of Jahiliyya in their transactions of loan and non-barter sales. This is evident from the most authentic version of the statement of Hazrat Umar (r.a.a.), reported in the Sahih of Al-Bukhari and Muslim. The words reported by Bukhari are as follows:

 

 

 

There are three things about which I wished that the Holy Prophet (p.b.u.h.) aid not leave us before explaining them to us in detail: the inheritance of grandfather and the inheritance of Kalalah (a person who has left neither a father nor a son) and some issues relating to Riba.

 

 

 

63. Moreover, at another occasion Hazrat Umar (r.a.a.) has clarified his position in the following worlds:

 

 

 

 

 

 

 

You think that we do not know about any issue from the issues of Riba and no doubt I would love to know all these issues more than I would like to own a country like Egypt with all its habitations -but there are many issues (about Riba) which cannot be unknown to any one e.g. purchasing gold for silver on deferred payment basis and purchasing the fruits on the tree while they are yellow and did not reap (in exchange of similar fruits without weighing theme’ ).

 

 

 

64, These narrations of the statement of Hazrat Umar (r.a.a.), clearly reveal two points: firstly, that all his concern in the issues of Riba related to Riba al-Fadl and not to Riba Al-Nasi’ah which was prohibited by the Holy Qur’an, and secondly, that even in the issue of Riba Al-Fadl he did not feel difficulty in many transactions which were clearly prohibited, however, he was doubtful only with regard to some transactions which were not expressly mentioned in the relevant hadith or in any other saying of the Holy Prophet (p.b.u.h.).

 

 

 

65. An objection may be raised on the above explanation: According to a narration reported by Ibn Majah, Hazrat Umar (r.a.a.) had declared that the verse of Riba was the last revealed verse of the Holy Qur’an, therefore, the Holy Prophet (p.b.u.h.) passed away before explaining it in full terms’. This narration shows that the doubts of Hazrat Umar (r.a.a.) related to the same Riba as was prohibited by the Holy Qur’an and not to Riba Al-Fadl. But after studying different sources narrating this statement of Hazrat Umar (r.a.a.), it transpires that the narration of Ibn Majah is not as authentic as that of Bukhari and Muslim. One of the narrators in the report of Ibn Majah is Saeed Ibn Abi Arubah who has been held by the experts of Hadith as a person who used to confuse one narration with the other. We have already quoted the exact words reported by Bukhari and Muslim with very authentic chain of narrators. None of them has attributed to Hazrat Umar (r,a.a,), that the verse of Riba was the last verse of the Holy Qur’an. It seems that a narrator like Saeed Ibn Abi Arubah has confused the exact words of Hazrat Umar (r.a.a.), with the words of Hazrat Ibn Abbas (r.a.a.), already discussed or with his own view that the verse of Riba was the last verse of the Holy Qur’an. We have already explained in detail the real facts in this respect and that it was not correct to believe that Riba was prohibited in the N last days of the Holy Prophet (p.b.u.h.) or that the verses of Riba were the last revealed verses of the Holy Qur’an. Therefore, the version given by Ibn Majah cannot be relied upon while correctly assessing the statement of Hazrat Umar (r.a.a.). It is consequently established that whatever doubts Hazrat Umar (r. a. a.), had in his mind about Riba were reteuant to Riba al- O Fadl only. So far as Riba Al-Qur’an or Riba Al-Nasiah is concerned, he had not the slightest doubt about its nature and its prohibition.

 

 

 

Productive or Consumption Loans

 

 

 

66. Another argument advanced by some appellants was that the Holy Qur’an had prohibited to claim any increase over and above the principal in the case of consumption loans only, where the borrowers used to be poor persons borrowing money to meet their day to day needs of food and clothes etc. Since no productive loans were in vogue in the days of Holy Prophet (p.b.u.h.) it was not contemplated by the verse of Riba to prohibit a charge on the commercial and productive loans. Otherwise also, they argued, it is injustice to claim any additional amount on the principal from a poor person, but it is not so in the case of a rich man who borrows money to develop his own commercial enterprise and earn huge profits through it. Therefore, it is only the loans of the first kind i.e. consumption loans on which any excess is termed as Riba and not an increased amount charged on the commercial loans.

 

 

 

67. We have paid due consideration to this argument but it could not stand the academic scrutiny for three different reasons:

 

 

 

(i) Validity of a transaction is not based on the financial status of a party

 

 

 

68. Firstly, the validity of a financial or commercial transaction does never depend on the financial position of the parties. It rather depends on the intrinsic nature of the transaction itself. If a transaction is valid by its nature, it is valid irrespective of whether the parties are rich or poor. Sale, for example, is a valid transaction whereby a lawful profit is generated. It is allowed regardless of whether the purchaser is rich or poor. Lease is a lawful transaction and it is permissible even though the lessee is a poor person. The most one can say is that a poor purchaser or a poor lessee deserves concession on humanitarian grounds, but one cannot say that charging any amount of profit. from him is totally haram or prohibited. If a poor person wants to purchase bread from a baker, one can say that the baker should not charge a high profit from him, but no one can say that the baker is obligated to sell the bread to him at his cost and any profit charged by him above the cost is totally unlawful for which he deserves hell. If a poor person hires a taxi, one can advise the owner of the taxi to give some concession to him on the basis of his poverty, but no one can reasonably assert that the owner of the taxi must not charge any fare from him or must not charge a fare higher than his actual expense, otherwise his income will be held as haram and analogous to waging war against Allah and His Messenger. The baker has opened his shop to earn a lawful profit through the transaction of sale which is intrinsically a valid transaction, and he deserves a reasonable profit for his investment and labour, even though the h purchaser is poor. If he is obligated to sell his breads to all the poor persons at his cost price, he can neither run his shop nor can earn livelihood for his children. Similarly, the one who runs a taxi for rendering transport services to the passengers is allowed to charge a reasonable fare from those benefiting from his service. If he is required to render this service to all poor persons free of charge, he cannot run the taxi. Nobody has, therefore, ever claimed that charging any profit or a fee or a fare from a poor person is totally haram. The reason is that profit, fee and fare, being lawful charges deserved by valid transactions, may be charged from the persons benefiting from the commodities sold or services rendered, even though the benefiting persons are poor. .

 

 

 

69. On the other hand, the prohibited transactions are invalidated on the basis of their intrinsic nature and not on the basis of the financial position of the parties. Gambling is prohibited for both rich and poor persons. Bribery is unlawful regardless of whether the bribe is charged from the rich or from the poor. It is, therefore, evident that it is not the richness or poverty of the parties that renders a transaction valid or invalid. It is the intrinsic nature of the transaction that really determines its validity or otherwise.

 

 

 

70. The case of charging interest from a debtor is in no way different. If it is a valid charge according to its intrinsic nature, it should be allowed, even though the debtor is poor, but if it is an invalid charge by itself, it should be unlawful irrespective of the financial position of the parties. There is no justification for distinguishing the case of interest from that of a sale in this respect by. restricting the former’s validity to the rich borrowers only, while charging of profit in a sale is allowed from both rich and poor persons. In fact, the notion that interest is prohibited only where the borrower is poor is totally against the well-established principles of business and trade where the validity of transactions is judged on the basis of their own strength and not on the identity of the parties involved.

 

 

 

71. Moreover, `poverty’ is a relative term which has different degrees. Once it is accepted that interest cannot be charged from the poor, while it is quite lawful to be charged from the rich, who will have the authority to determine the exact degree of poverty required for exempting a, person from the charge of interest? If the distinction between lawful and unlawful interest is drawn on the basis of the purpose of the loan, and the loans taken for consumption are exempted from the charge of interest, as urged by some appellants, the consumption itself may be of different kinds which range from food items to luxurious objects. Even if the ‘consumption’ is restricted to the requirements of one’s life, they too vary from person to person. One may argue that private transport has become one of the necessities of life, and therefore, he is entitled to take an interest-free loan for purchasing a car. House is one of the fundamental necessities of one’s life and no interest can be charged on millions of rupees borrowed for the purpose of constructing or purchasing a house, because all these borrowings fall within the category of ‘consumption loans’. On the other hand, if an unemployed person borrows a few hundred rupees to start hawking on the streets, it will be quite lawful to charge interest from him, because his loan does not fall within the definition of a consumption loan’.

 

 

 

72. It is thus, clear that the permissibility of interest can neither be based on the financial position of the debtor, nor on the purpose for which money is borrowed, and therefore, the distinction between consumption loans and productive loans in this respect is contrary to the well-established principles.

 

 

 

(ii) The Nature of Our’anic Prohibitions

 

 

 

73. The second reason for which this argument is not tenable, is that the verses which prohibit Riba do not at all differentiate between a consumption or a commercial loan, nor does this difference find any mention whatsoever in the vast literature of the Sunnah dealing with Riba. Even if it is presumed for the sake of argument that commercial loans were not in vogue in the days of the Holy Prophet (p.b.u.h.), it does not justify the insertion of a new condition in the concept of Riba which, as established earlier, was quite clear in the minds of the addressees of the Holy Qur’an. The Holy Qur’an has prohibited Riba in general terms which includes all the forms of Riba whether or not prevalent at the time of its revelation. When the Holy Qur’an prohibits a transaction, it is not a particular form of the transaction that is meant by the prohibition. It is the basic concept of the transaction which ‘is hit by the injunction. When liquor was prohibited, it was not only the particular forms of liquor, available in those days which were forbidden, it was the substance of liquor which was banned, and nobody can reasonably claim that the new forms of liquor which were not available in the days of the Holy Prophet (p.b.u.h.) are not hit by the prohibition. When Qimar (gambling) was declared as haram the purpose was not to restrict the prohibition only to those forms of gambling which were in vogue at that time. The prohibition, in fact, encompassed all its present and future forms, and no one can sensibly argue that the modern forms of gambling are not covered by the prohibition. We have already discussed the meaning of the term Riba as understood by the Arabs and as I interpreted by the Holy Prophet (p.b.u.h.) and his noble companions, and that it covered any stipulated additional amount over the principal in a transaction of loan or debt. This concept had many forms in the days of the Holy Prophet (p.b.u.h.), may have taken other forms in the later ages and still may take some other forms in future, but as long as the said basic feature of the transaction remains intact, it will certainly invoke the prohibition.

 

 

 

(c)        Banking and Productive Loans in the Age of Antiquity

 

 

 

74. Thirdly, it is not correct to say that commercial or productive loans were not in vogue when Riba was prohibited. More than enough material has now come on the record to prove that commercial and productive loans were not foreign to the Arabs, and that loans were advanced for productive purposes both before and after the advent of Islam.

 

 

 

75. In fact the academic and historical research has discovered the fallacy of the impression that mercantile loans and banking transactions are the invention of the 17th Century A.D.27 Modern discoveries have shown that the history of banking transactions refers back to a period not less than two thousand years before Christ. The Encyclopaedia Britannica, while discussing the history of banks, has detailed the early traces of the banking transactions. The relevant article begins with the following remark:

 

 

 

“Pastoral nations such as Hebrews, while they maintained moneylenders, had no system of banks that would be considered adequate from the modern point of view. But as early as 2000 B.C., the Babylonians had developed such a system. It was not the result of private initiate, as that time, but an incidental service performed by the organized and wealthy institution of the cult. The temples of Babylon, like those of Egypt, were also the banks. `The shekels of silver’ runs a Babylonian document, `have been borrowed by Mas:.. Schamach, the son of Adadrimeni, from the Sun-priestess AmatSchamach. daughter of Warad-Enlii. He will pay the Sun-.God’s interest. At the time of the harvest he will pay back the sum and the interest upon it’. It is evident enough that the priestess Amat Schamach was merely the accredited agent of the institution. No doubt the clay tablet with the inscription corresponds to what we call negotiable commercial paper. Another document of the same period was certainly such. It runs: `Warad-Ilisch, the son of Taribum, has received from the Sun-Priestess Iltani, daughter of Ibbatum, one shekel silver by the sun-God’s balance. This sum is to be used to buy sesame. At the time of the sesame-harvest, he will repay in sesame, at the current price, to the bearer of this I Q document “.”

 

 

 

76. The article has then detailed how the banking operations developed from religious institutions to private business institutions, until in 575 B.C. there was a banking institution in Babylon, the Igibi Bank of Babylon. The records of this bank show that it acted as buying agent for clients; loaned on crops, attaching them in advance to ensure reimbursement; loaned on signatures and on objects deposited, and received deposits on interest. The article has further detailed that similar banking institutions existed also in Greece, Rome, Egypt etc. centuries before Christ and they deposited money, lent it on interest and extensively used letters of credit, financial papers and traded in them.

 

 

 

77. Will Durant, the famous historian of the recent past, has given a detailed account of the banking transactions prevalent in Greece in the fifth century before Christ. He has mentioned that despite interest being denounced even by the philosophers, there were banks in Greece:

 

 

 

“Some deposit their money in temple treasuries. The temples serve as banks, and lend to individuals and States at a moderate interest; the temple of Apollo at Delphi is in some measure an international bank for all Greece. There are no private loans to Governments, but occasionally one State lends to another. Meanwhile the moneychanger at his table (trapeza) begins in the fifth century to receive money on deposit, and to lend it to merchants at interest rates that vary from 12 to 30 per cent. according to the risk; in this way he becomes a banker, though to the end of ancient Greece he keeps his early name of trapezite, the man at the table. He takes his methods from the near East, improves them, and passes them on to Rome, which hands them down to modern Europe. Soon after the Persian War, Themistocles deposits seventy talents ($420,000) with the Corinthian banker Philostephanus, very much as political adventurers feather foreign nests for themselves today; this is the earliest known allusion to secular-non temple-banking. Towards the end of the century Antisthenes and Archestrtus establish what will become, under Pasion, the most famous of all private Greek banks. Through such trapezitai money circulates more freely and rapidly, and so does more work, than before, and the facilities that they offer stimulate creatively the expansion of Athenian trade.

 

 

 

78. Even in the days closer to the advent of Islam in Arabia, all kinds of commercial, industrial and agricultural loans advanced on the basis of interest were prevalent in the Byzantine Empire ruling in Syria, to the extent that Justinian, the Byzantine Emperor (527--565 A.D.) had to promulgate al law determining the rates of interest which could be charged from different types of borrowers. Gibbon has detailed the contents of the Code of Justinian and that it allowed the rate of 4 % charged as interest from illustrious people, 6% charged from general people as ordinary rate of interest, 8 % from the manufacturers and merchants and 12 % from nautical insurers. The exact words of Gibbon are as follows:

 

 

 

“Persons of illustrious rank were confined to the moderate profit of four per cent; six was pronounced to be the ordinary and legal standard of interest; eight was allowed for the convenience of manufacturers and merchants twelve was granted to nautical insurers.

 

 

 

(Underlining is ours).

 

 

 

79. The underlined part of the above passage shows that the practice of commercial loans was so widespread in the Roman Empire that a separate R law was enforced to fix their rate of interest. This law of Justinian was promulgated in Byzantine Empire shortly before the birth of the Holy Prophet (p.b.u.h.) in Arabia (Justinian died in 565 A.D. while the Holy prophet (p.b.u.h.) was born in 570 A.D.) and obviously the law remained in force for quite a long time after its promulgation. On the other hand the Arabs, especially of Makkah, had constant business relations with Syria, one of the most civilized provinces of the Byzantine Empire. As we shall see later in detail, the Arabs trade caravans used to export goods to and import other goods from Syria. Their economic and financial relations with the Byzantine Empire were so prominent that the currency used throughout the Arahian peninsula was the Dirhams (of silver) and Dinars (of gold) coined by the Byzantine Empire”, so much so that the poets have referred to the Dinars as Ceazarians. Kuthair Uzzah, one of the famous Arab poets says -